ET Now: Now RBI has proposed to reduce risk weights for individual housing loans and these are applicable to lower value, but well collateralised housing loans as well. How positive is this for housing finance companies like yours?

V Raghu: Well this move is definitely a positive move as far as the low-cost housing units are concerned. Since we have sizable exposure in the rural and semi-urban areas, this will have big benefit to us on the capital which can be passed on to borrower.

This is a very good move by the RBI. It is a surprise move also to announce that they will reduce the risk weights for low-cost housing.

ET Now: What is your average ticket size, and by how much will your capital requirement and yields come down because of the reduction in weights?

V Raghu: Well average ticket size has been around 12 lakhs of rupees as of the end of the March 2015, probably it will remain on that zone more or less during the current year also, we expect that and since we already have a comfortable capital adequacy ratio and without doing the proper calculation, the numbers, I do not think I will be in a position to give you exactly how much benefit we get on the capital or how much hit we will take on the spreads. It will be too early probably to judge that.

ET Now: Let us understand the implications of a 50 bps rate cut in terms of demand. Do you think such a sharp rate cut and transmission of this could have a huge impact on the housing demand? Do you think the home loan buyers are sensitive to 50 bps, 75 bps, are they that sensitive?

V Raghu: Well the low-income households are interest rate sensitive, is felt there and normally during a festive season the demand for housing loans picks up, and with this reduction in 50 bps at one go, we expect the demand to pickup during the festive season now.

ET Now: My next question is that now that directionally interest rates are headed lower and interest rates will only come down, banks will find it cheaper and easier to borrow from the wholesale market, which means they will be in a position to offer competitive rates, better rates, that could be business loss for you.

V Raghu: No I do not expect it to be business loss because we have separate target group of funding. Even if they are going to lend, the problem is that for the small ticket size loans for the banks, it will add to the cost of operations. Already with the pressure on the spread, how much of that will get realised into the real estate loan, banks also should feel comfortable in bulk lending to the housing finance companies and to that extent, we feel that the competition may not be there but yes competition is expected to some extent.

ET Now: I wanted a sense from you, how much of your existing portfolio would be loaned out on the fixed loan basis? Because with the kind of rate cut trajectory that we are in and the way the rates have come off yesterday, and probably going ahead as well, all of this would ideally lead to substantial margin expansion for you as a company.

V Raghu: All my loans are floating rate loans. All the housing loans are all on floating rates. So the borrowers also will expect some reduction in the rates. It will depend on how much reduction we are going to have on our cost of funds, and how much of it we like to pass it on to the borrowers.

Probably we will take a call on that. Once we have a clear picture from all the banks from whom we borrow the money, when they do their interest rate transmission, we will have a clear picture on that.

ET Now: But in the short term, while you migrate from higher loan trajectory to a lower loan trajectory, can that impact your NIMs? Because you have to pass on the benefits immediately to customers or to borrowers and by the time your yield curve will normalise, it could take maybe quarter, it could take more than a quarter.

V Raghu: That is why I said the NIM and all will have a lagged effect, and we expect probably since there is reduction in the cost of funds, which is getting passed on to that, the current NIM levels should be maintained.

ET Now: A lot of people are now believing that property prices too have come off substantially and will probably stabilise, or probably move up from these levels and starting this festive season the demand at large for housing will come back with a vigour, you obviously have a lot of experience with regards to this because you are on the premier housing loan companies, what are your thoughts really and do you think business at large moving up over the course of the next two or three quarters?

V Raghu: Well, usually the second half of the year, now we have almost come to the end of the first half of the year, second half of the year always see a larger growth than the first half and with all these reduction and the property prices stabilising, we expect the demand to be more during the second half the current year when compared to the previous years.